Week in Review

Week Ending: Friday, January 29, 2018

Recap & Commentary

U.S. equity markets again ended the week at record highs. Both the Dow and S&P 500 logged their eighth positive week out of the last nine.

In a sign of growing expectations that the Fed will continue to lift interest rates and investors’ growing confidence in the global economy, the 10-year Treasury yield ended the week at 2.64%, the highest it’s been since June 2014.

The U.S. dollar fell on Thursday to its lowest level since May 2015, as the Euro extended gains that have pushed it to its strongest since 2014. This week capped the fifth straight week of declines for the dollar, even against a backdrop of solid U.S. growth.

Congress failed to reach an agreement on a spending plan, triggering a partial government shutdown early Saturday morning. The Senate began considering a spending bill on Thursday night, with a deadline for a compromise 12:01 AM Saturday. The Senate rejected a one-month spending bill, triggering the shutdown. Negotiations over the immigration and spending issues remained unresolved at the close of the weekend.

As of Friday, 11% of S&P 500 companies have reported earnings results, 68% of them reporting positive EPS surprises and 85% reporting positive sales surprises. By sector, Financials are the only sector expected to report a decline in earnings, the other ten expecting earnings growth for the quarter. Analysts currently project double-digit earnings growth through 2018.

China’s GDP growth accelerated for the first time in seven years. 2017 GDP growth was 6.9%, up from 6.7% the prior year. China’s GDP has been reported between 6.7% and 7.0% since the first quarter of 2015.

Economic Bullet Points

The first indications on 2018’s factory sector, the Empire State Mfg. Survey and Philadelphia Fed Business Outlook were solid, but cooled slightly in January. Employment was a soft spot in the former; optimism faltered in the latter. These samples first took off around this time last year, correctly signaling what was a healthy 2017 for the factory sector, but were well above what government data indicated.

Industrial Production was mixed. Production handily exceeded expectations at the headline level, while manufacturing missed. The large gain in production was the result of a weather-related utility surge. Aside from the month-to-month noise, the utility component does little by way of contributing to the broader view of the industrial landscape.

Housing market data pivoted higher in the last few months of 2017, the Housing Market Index held onto most of December’s gain, an indication that sentiment among the nation's homebuilders remains elevated. Housing Starts fell in December, but this was on the heels of a surge in the month prior due to unseasonably warm weather and some bounce back from hurricane disruption. The slowdown at the headline level masks what was an otherwise very solid start to 2018 for housing starts and permits.

The consumer is healthy and optimistic as indicated by Consumer Sentiment, but pulled back slightly in early January. Weakness in the current conditions component does not bode well for January’s consumer spending or employment, but both expectations and inflation expectations are positive and trending in the right direction.

Of Note

Apple Inc. announced they will pay a one-time tax of $38B to bring home overseas cash. The tax code overhaul provided an incentive for companies to bring offshore holdings home. Apple plans to invest $350B in the U.S. over the next five years, adding a new campus and more than 20k jobs.

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